Mutual funds allow investors to buy gold as exchange-traded funds (ETF) or fund of funds (FoF) that invest in ETFs. Both are paper gold, but there are a few differences. A gold ETF unit typically represents one gram of pure gold and is bought from the exchange where it is listed. Fund of Funds is an investment strategy of holding a portfolio of other investment funds, rather than investing directly in stocks, bonds or commodities.
In international markets, precious metal portfolios focus on mining stocks, though some do own small amounts of gold bullion. Most portfolios concentrate on gold mining stocks, but some have significant exposure to silver, platinum, and base metal mining stocks, as well. Precious metals companies are typically based in North America, Australia, or South Africa.
If we add up the total amount of net inflows for Q1-Q3 2014, investors dumped $962 billion into the worldwide mutual fund market. Now, compare that to the paltry $33 billion invested in physical gold, as per the World Gold Council (WGC). However, the figures from China could be slightly more. According to the WGC, global demand for physical gold was close to $35 billion.
At a global level, a majority of investor money went into bond funds internationally and debt funds in India, followed by equity funds, money market funds and other funds. So, Asian countries, including India and China and a few others like Turkey have been actively buying physical assets like gold while Europeans and Americans forge blindly ahead into mutual funds.